ALU: Evercore Impressed with ‘Nuage’ Soft Networking Presentation

By Tiernan Ray

Shares of Alcatel-Lucent (ALU) are up a penny, or 0.4%, at $1.32, following an event in Silicon Valley yesterday to announce “Nuage Networks,” an effort to sell gear for so-called “software defined networks,” or SDN, an emerging area of competition between box makers. The press release for the announcement is posted on the company’s Web site.

Alcatel said trials of the unit’s “Virtualized Services Platform” will start this month with U.S. and European telcos such as Exponential-e, SFR, TELUS and the University of Pittsburgh Medical Center, with worldwide availability by the middle of the year.

Evercore Partners’s Mark McKechnie, who was at the event, which he describes as little-attended by Wall Street, today reiterates an Overweight rating and a $2 price target on Alcatel stock, writing that the details at the event seem to him a “sound” strategy.

The company aims to make it easier for companies to buy servers instead of buying routers from Cisco Systems (CSCO) and others:

ALU’s CTO articulated its corporate vision for SDN / NFV (network functions virtualization) strategy which included a well thought out balance / mix-shift of comms equipment to compute (servers) from fixed-function hardware (networking). The company expects high-bandwidth applications which support video / web access with edge and core routers to remain on purpose built / NPU-based hardware for the long-term, but a shift towards general-purpose servers / CPU-based solutions for lower bandwidth applications such as machine-to-machine and network applications with deep-packet-inspection (DPI) in the middle.

Alcatel’s presentation yesterday in fact follows a Cisco presentation on SDN Monday in New York, which was hosted by UBS analyst Amitabh Passi.

McKechnie also offers some color from Alcatel about its own enterprise router offering, about whose progress the company was upbeat, he writes:

ALU is surprisingly optimistic in its core router prospects versus both JNPR and CSCO where it believes it will take share in 2013 and beyond. As of Feb 19th 2013, the 7950 XRS is in 20 commercial trials and has been selected by 6 customers. However, as of that date, the company has only announced 3 public wins. (1) Verizon (2) Telefonica (3) Belgacom. And, on March 5th, announced a 4th win at UPMC (a healthcare provider in Western Pennsylvania). ALU believes relative margins are best for the edge-routers, slightly lower for core routers, and the lowest for backhaul / aggregation, but still well above ALU’s corporate average in the high 20′s. We see ALU’s IP division as a key contributor to our sum-of-parts valuation of $2.50+, as we conservatively attribute 1x CY13 sales as contributing $3B or $1.30 per share, which we believe can be unlocked given ALU’s improved balance sheet and a recovering global capex cycle.

Update: Raymond James’s Simon Leopold was similarly impressed, writing this morning that the capabilities of Nuage seem to outpace those of rivals.

Leopold, who has an Outperform rating on Alcatel stock, and a $2.50 price target, writes,

Although the concept of virtualization is not new, Nuage’s approach seems to differentiate itself from current solutions by working with existing infrastructure in a multi-supplier environment. The application provides an abstraction to simplify networks and automation to ease service creation and operation. Nuage announced its Virtualized Services Platform (VSP), which in contrast to existing solutions has the ability to offer Virtual Machines (VM) connectivity and mobility across datacenters, seamless integration with service provider MPLS VPNs, integrated Layer 2-4 network virtualization, while having an open standards control plane that works with any vendor’s hardware. Although the Nuage VSP platform has trials, wide-scale adoption is likely years away.

Add a Comment

We welcome thoughtful comments from readers. Please comply with our guidelines. Our blogs do not require the use of your real name.

Comment

There is 1 comment

APRIL 3, 2013 11:09 A.M.

Collin P. wrote:

Evercore Partners’s Mark McKechnie who rated ALU a BUY has 5 stars at TipRanks with 63% of his Buy ratings outperforming the S&P since 2009 and 12% average return on his recommendations.. VERY impressive http://tipranks.com

About Tech Trader Daily

Tech Trader Daily is a blog on technology investing written by Barron’s veteran Tiernan Ray. The blog provides news, analysis and original reporting on events important to investors in software, hardware, the Internet, telecommunications and related fields. Comments and tips can be sent to: techtraderdaily@barrons.com.